WASHINGTON, Dec 9 (Reuters) - The U.S. futures regulator on
Thursday unveiled a long-awaited rule outlining exemptions for
firms using swaps to hedge risk, but at the last minute
postponed issuing a separate rule with guidelines for swap
trading platforms.

Without much explanation, Gary Gensler, chairman of the
Commodity Futures Trading Commission, said he was delaying
until next week the agency's proposals to make swap execution
facilities, or SEFs, transparent. The delay further underscores
the tight deadline the agency is under, and different views by
the agency's five commissioners as to what Congress intended.

"We're human," Gensler said at a public meeting.

Gensler also said the regulator intends to propose on Dec.
16 another long-awaited plan to limit speculative positions
held by commodity traders.

The CFTC and the Securities and Exchange Commission,
another market regulator, are scrambling to comply with the
Dodd-Frank bill that requires oversight of the $600 trillion
over-the-counter derivatives market.

Under the CFTC proposal, end users, or those that use
derivatives to manage commercial risk, would be exempt from
rules if one party to the swap transaction is a non-financial
entity.

Gensler was quick to point out that, if a company, fund or
entity took a position to speculate, that transaction would not
qualify for the end-user exception.

Major players who would be affected are closely watching
how the rules are enacted, and the impact on their bottom
line.

Corporations such as Exelon (EXC.N), Caterpillar (CAT.N),
and Ford (F.N) want to ensure they qualify for exemptions that
would excuse them from requirements to clear most swap trades,
which would force them to post billions of dollars in margin.
Many firms now trade using credit lines with banks.

Other firms, including GFI Group (GFIG.N) and
IntercontinentalExchange Inc (ICE.N), hope to qualify as
so-called swap execution facilities specially designated to
handle the mandatory trading of most swap contracts, a measure
meant to decrease financial risk and increase transparency.
Traditionally most swap trades were bilateral and private.

The new law also allows "end-users" such as manufacturers
that use swaps to hedge "commercial risk" to be exempt from
mandatory clearing requirements. Supporters contend this will
keep costs lower by letting firms retain capital that otherwise
would be used to post margin to cover cleared trades.

The CFTC said end-users could be exempt if at least one
party to the swap transaction is not a financial entity,
information is provided on how the firm meets its financial
obligations associated with entering into non-cleared swaps,
and the swap is being used to hedge or mitigate commercial
risk.
Hedging or mitigating commercial risk would be determined by
analyzing the facts and circumstances at the time the swap is
entered into, and taking into account the person's overall
hedging and risk mitigation strategies. It would not include
any swap position held for speculation, investing or trading.

An end-user would inform the CFTC it's using the exemption,
and provide information including the methods used to mitigate
counterparty credit risk in the absence of clearing, the
identity of the end user, whether an affiliate or financial
entity is involved, and other information about the swap.

The CFTC said it was seeking public comment to help it
determine if small banks should be granted a clearing
exemption. That puzzled Republican commissioners Jill Sommers
and Scott O'Malia.

"I am flummoxed as to why we are failing to fully address
the issue of excluding small banks, farm credit institutions
and credit unions from the definition of financial entity,"
O'Malia said at the public meeting.

"All we are going to do today, after almost five months
with this language, is punt it," he said.

The Dodd-Frank bill prohibits most financial entities from
receiving an exemption.

MORE TRANSPARENT SEFs NEXT WEEK

CFTC commissioners had been expected to decide on Thursday
whether to propose rules to make swap execution facilities
transparent.

Under tentative CFTC plans, the swap venues would be
required to provide electronic trading systems or platforms
that have a centralized limit order book open to all
participants. They also could have a transparent quote system
that meets certain requirements.

Without going into detail, Sommers expressed concern over
the agency's preliminary plan and said it was too narrow in
scope.

Gensler said the agency would review its rule and said it
"might actually change by next week."

Under the CFTC's original plan, SEFs would offer three
tiers of transactions: larger trades that meet a specific level
of volume, smaller trades that are not block trades but don't
have major volume, and other transactions, such as block trades
where a SEF could provide end users the chance to trade even
though it's not required.

One important aspect of the rules would require that all
participants in the market be able to see all relevant trade
information under a so-called "request for quote" system. In
the past, one party could limit which potential counterparties
it wanted to allow to see a request.

"Certainly, we know some markets right now that would have
to adjust their current model," an agency official said in a
background briefing.

The rules would go into effect 90 days after they're
finalized, but provide a grace period for pending SEF
applications.

CFTC said once certain conditions have been met, entities
that meet the definition of a SEF could request the agency
allow them to function as one while their application is
reviewed.

Companies that traditionally have been big players in the
over-the-counter swaps market are working to ensure they stay
in the game as the business moves under the CFTC's regulatory
oversight. Barclays (BARC.L), Credit Suisse CGSN.VX, Morgan
Stanley (MS.N) and others have met with the agency to discuss
the new trading platform.

(Reporting by Ayesha Rascoe and Christopher Doering; Editing
by John Picinich and Walter Bagley)

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